Asian Hedge Fund Industry Positions For Growth In 2009

by Mary Swire, Tax-News.com, Hong Kong

15 May 2009

Hedge Funds investing in Emerging Asia posted gains in March and April, with the HFRI Emerging Markets: Asia ex-Japan Index gaining over 8.5% year to date through April, inclusive of a 7% gain in the month April. Despite the recent gains, investors withdrew USD9bn from hedge funds investing in Asia in the first quarter of 2009, according to data released on May 13 by Hedge Fund Research, Inc., a leading hedge fund industry data provider.

Total capital invested in the Asian hedge fund industry fell to USD65bn at the end of Q1, approximately USD45bn below the record level achieved at the end of 2007. Globally in the first quarter, investors withdrew more than USD103bn from hedge funds, reducing total industry assets to USD1.33 trillion.

As a result of positive performance in Q1, funds investing exclusively in Emerging Asia or across both Emerging Asia and Japan posted a performance-based asset gain of over USD2.6bn. Hedge funds investing in Emerging Asia have posted gains in three of the last five months, after losses of nearly 33.5% in 2008. Funds focused solely on Japan, by way of comparison, generated a performance-based asset loss for the quarter of approximately USD575m.

Over 1,000 hedge funds now focus on investing in Asia. This total represents over 15% of the total number of funds in the global industry and exceeds the 12% focusing on Europe. However, Asia-focused funds are characteristically smaller, accounting for 4.9% of total industry assets versus the 9% found in European-focused funds.

China is home to the third largest number of hedge fund firms globally. While over 85% of firms are located in the US and the UK, nearly 3% of firms are headquartered in China. Also reflecting an increasing trend of operating funds in local markets, while 48% of all funds investing in Asia are still located in the US and UK, 20% of funds investing in Asia are located in China, up from 17% one year ago.

“Hedge funds investing in Asia began the current period of consolidation earlier than the overall industry, but also now appear to be stabilizing earlier,” said Kenneth Heinz, President of Hedge Fund Research. Adding: “Global investors are likely to have strong interest in allocating to Asia-focused hedge funds in 2009, as they look to access Asia’s superior secular growth dynamics, supported by the relative stability of the region’s banking sector and global currency reserves.”

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